The Effect of Insider Trading on Average Rates of Return

Robert Heinkel and Alan Kraus

Canadian Journal of Economics, 1987, vol. 20, issue 3, 588-611

Abstract: This paper examines the profitability of insider trading. The authors examine insider trading on the Vancouver Stock Exchange where it might be argued that there are larg e informational asymmetries. Besides the traditional "event study" approach, they develop portfolio performance measures for the aggrega te insider and his/her trading partner (by definition, the outsider) that measure portfolio return over the entire sequence of insider (an d outsider) trades. The major conclusion is that, despite being able to identify particular profitable insider trades, the insiders do not , over all their trades, outperform the outsiders. This conclusion ha s important implications for the economic viability of the exchange.

Date: 1987
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